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Interdependence in multinational production networks

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  • Maggie Xiaoyang Chen

Abstract

Most multinational firms today operate multilateral production networks. Most existing empirical analyses, however, have focused on firms’ choice between producing at home and investing overseas. This paper uses detailed French multinational subsidiary data to examine the effect of existing production networks on multinationals’ entry decisions. The paper finds strong horizontal and vertical interdependence across multinationals’ foreign production locations, but little interdependence between home and foreign production when third‐country effects are taken into account. This result constitutes a sharp contrast to the conventional emphasis and highlights the importance of investigating foreign direct investment in the context of multinational production networks. La plupart des firmes plurinationales opèrent aujourd’hui des réseaux de production multilatéraux. La plupart des analyses empiriques disponibles ont cependant porté leur attention sur le choix des firmes entre produire au pays ou investir à l’étranger. Ce mémoire utilise des données détaillées sur les firmes multinationales françaises et leurs succursales pour examiner l’effet des réseaux de production existants sur les décisions d’entrée. On trouve de fortes relations d’interdépendance (horizontales et verticales) entre les diverses localisations de production à l’étranger des multinationales, mais peu d’interdépendance entre la production domestique et la production à l’étranger quand les effets des tiers pays sont pris en compte. Ce résultat contraste vivement avec ce qui ressort des analyses conventionnelles, et souligne l’importance d’examiner l’investissement direct à l’étranger dans le contexte des réseaux de production plurinationaux.

Suggested Citation

  • Maggie Xiaoyang Chen, 2011. "Interdependence in multinational production networks," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 44(3), pages 930-956, August.
  • Handle: RePEc:wly:canjec:v:44:y:2011:i:3:p:930-956
    DOI: 10.1111/j.1540-5982.2011.01661.x
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    Cited by:

    1. Jerónimo Carballo & Ignacio Marra de Artiñano & Christian Volpe Martincus, 2021. "Information Frictions, Investment Promotion, and Multinational Production: Firm-Level Evidence," CESifo Working Paper Series 9043, CESifo.
    2. Chen, Maggie Xiaoyang & Lin, Chuanhao, 2020. "Geographic connectivity and cross-border investment: The Belts, Roads and Skies," Journal of Development Economics, Elsevier, vol. 146(C).
    3. Li, Cunfang & Li, Danping & Zhang, Xiaoxu, 2019. "Why can China's coal resource-exhausted enterprises cross the district to transfer?," Resources Policy, Elsevier, vol. 60(C), pages 94-105.
    4. Laura Alfaro & Maggie X. Chen, 2016. "Location Fundamentals, Agglomeration Economies, and the Geography of Multinational Firms," Working Papers 2016-18, The George Washington University, Institute for International Economic Policy.
    5. Fillat, José L. & Garetto, Stefania & Oldenski, Lindsay, 2015. "Diversification, cost structure, and the risk premium of multinational corporations," Journal of International Economics, Elsevier, vol. 96(1), pages 37-54.
    6. Jae‐Joon Han & Hongshik Lee & Joonhyung Lee, 2019. "The role of foreign affiliate productivity in the integration strategies of multinational firms," The World Economy, Wiley Blackwell, vol. 42(5), pages 1576-1597, May.
    7. Helen Naughton & Pehr-Johan Norbäck & Ayça Tekin-Koru, 2016. "Aggregation Issues of Foreign Direct Investment Estimation in an Interdependent World," The World Economy, Wiley Blackwell, vol. 39(12), pages 2046-2073, December.
    8. Debaere, Peter & Lee, Hongshik & Lee, Joonhyung, 2013. "Language, ethnicity and intrafirm trade," Journal of Development Economics, Elsevier, vol. 103(C), pages 244-253.
    9. Alfaro, Laura & Chen, Maggie Xiaoyang, 2014. "The global agglomeration of multinational firms," Journal of International Economics, Elsevier, vol. 94(2), pages 263-276.
    10. Simon Bösenberg & Peter H. Egger & Valeria Merlo & Georg Wamser, 2018. "Measuring The Interdependence Of Multinational Firms' Foreign Investments," Economic Inquiry, Western Economic Association International, vol. 56(2), pages 1064-1088, April.
    11. Laura Alfaro & Maggie Xiaoyang Chen, 2018. "Transportation cost and the geography of foreign investment," Chapters, in: Bruce A. Blonigen & Wesley W. Wilson (ed.), Handbook of International Trade and Transportation, chapter 12, pages 369-406, Edward Elgar Publishing.

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    More about this item

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory

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